How and why did Congress move so quickly on the bailout bill? Congress was able to pass this very complex, high-dollar legislation in a matter of days–nevermind the fact there had been signs of a subprime crisis that's at the root of all this–for months if not years. Relatively speaking, CURIA, which has been floating around the marble halls of Capitol Hill in various forms for the last five years, is simple however, so you'd think they could accomplish this in a matter of hours. But, the fact of the matter is that lawmakers tend to wait until there's a crisis that finally outweighs political concerns before they act.
Congress would not address it in increments along the way because of various political pressures. One of the Bush administration's big claims a few years ago was that the United States had more homeowners than ever before. We'll see how long that lasts now. From the other side of the aisle, Democrats said Fannie Mae and Freddie Mac were just fine and blocked efforts to further regulate them, despite the news of massive accounting errors, the changing of the guard and the expansion of the types of paper they would accept, which all ultimately led to conservatorship.
So instead of making tweaks here and there along the way to prevent crisis, now Congress had to rush a massive bailout, pork barrel and all, which probably no one has read entirely. Few will even dare to predict its final impact, and wisely so.
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Meanwhile, this is a prime time for credit unions to capitalize on their strong suits: service, assisting members and offering better deals than their for-profit brethren.
Credit unions were also considered in at least two places in the economic recovery package, demonstrating their growing influence in Washington. Not only did the credit union lobby achieve parity in increasing deposit insurance coverage to $250,000, a move to keep everyone from putting their money in a mattress, but they also were included in government mortgage buyouts. This latter issue had to be a bitter pill for the bankers to swallow.
The parity both of these provisions provide is important for boosting consumer confidence, but I am a bit concerned how credit unions might handle this new responsibility. If credit unions take advantage of the program, they will no longer be able to make the claim that they've never cost taxpayers a dime. This fact I think particularly resonates with policymakers when credit unions are asking for regulatory relief or expansions of power.
Again, if credit unions take a buyout of their bad assets from the government, it calls into question their tax-exempt status. The bankers and lawmakers will question whether credit unions should pay taxes if they are going to reap this benefit. If credit unions use this opportunity, they should consider more than just the dollars and cents of it.
And, while credit unions should serve their members and take advantage of banks' liquidity crunch to bolster their membership and status, if the current environment continues and the banks go down, we all go down. Even fervent credit union leaders have said they would not want to imagine the financial services industry in the U.S. without banks.
There are pros and cons also for credit unions if just a few mega-banks are left standing after the smoke settles. Credit unions will not be able to compete with the scale of these behemoths, and they would be de facto government-backed under the too-big-to-fail theory (recently codified by the bailouts and assisted mergers). If the new Treasury proposal to buy stock in banks, similar to England's recent maneuvering, is implemented, this would be particularly true. England has said it will not be shy about telling management how to run the banks; it would be interesting to see what Treasury would do in that scenario.
Additionally, as consolidation of financial institutions continues, accelerated by the current economic climate, the Treasury Blueprint, one thought dead on arrival, becomes more plausible from an efficiency standpoint. Credit unions will have to be vigilant to defend their tax-exempt status and the NCUA as an independent regulator because credit unions are truly unique from the rest of the financial services marketplace.
Credit unions, at the service level, could crush these mega-banks. So long as credit unions continue to cooperate with each other for the back office-type work, saving time and money, even the smallest credit union would be able to focus on providing superb member service. Remaining committed to serving as a regulator of bank fees would be a crucial piece of this.
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